The Government has published for consultation draft legislation2 to amend the Companies Act 2006 with the aim of making corporate reporting more transparent. The proposals include the introduction of a new strategic report to replace the business review currently contained in the directors’ report. The strategic report will be a concise, stand-alone report, separate from the rest of the directors’ report. The Government is not, however, going ahead with its earlier proposals to change the format of the directors’ report itself.

The new strategic report

The contents and purpose of the new strategic report will mirror those of the existing business review. Quoted companies3 will, however, be required under the terms of the amended Companies Act 2006 to include information on their business model and strategy,4 as well as making certain new disclosures relating to human rights and gender balance within the organization. In a proposal that reflects one of the recommendations made by Lord Davies in his report of 2011 on Women on Boards, quoted companies will be required to include a breakdown of the number of men and women within the organization, both in terms of overall numbers as well as numbers of those in senior executive positions.5 The proposals will, on the other hand, remove the requirement for quoted companies to report on their essential contractual relations.

Directors’ report

The proposals will also remove from the directors’ report certain reporting requirements that are out-dated or duplicated, including those requiring details about asset values and charitable donations, as well as the policy and practice of payments to creditors.

Summary financial statement abolished

Under the new regime, the strategic report will replace the summary financial statement. Accordingly, for the future, companies may, with the consent of shareholders, circulate the strategic report, rather than the annual report and accounts, in the same way as they currently circulate the summary financial statement.

FRC Guidance

The Financial Reporting Council (‘FRC’) will consult early next year on guidance to help companies comply with the new regime. It is hoped that this will, among other things, clarify the Government’s proposals regarding the new disclosures to be made by quoted companies in the area of human rights.

Timetable

Comments on the proposals were requested by 15 November 2012. The new regime will come into force for financial years ending on or after 1 October 2013, at the same time as the Government’s proposed changes to voting and reporting on executive remuneration.

Government Consultation Paper: The Future of Narrative Reporting: A New Structure for Narrative Reporting in the UK (published 18 October 2012) available at:

http://www.bis.gov.uk/assets/biscore/business-law/docs/f/12-979-future-of-narrative-reporting-new-structure.pdf